The Euro US Dollar exchange rate edged higher throughout Thursday’s session, briefly hitting 1.1363 – its highest point since Britain voted to Leave the EU. However, as the US Dollar recovered from its recent selloffs, EUR/USD slipped on Friday.
- Euro US Dollar Exchange Rate Below 1.1350 – Slips after post-Brexit best
- German Producer Prices Beat Forecasts – Prices edging away from deflation despite Brexit
- US Dollar Recovers on Friday – Up from worst levels on Federal Reserve bulls
- Forecast: Eurozone PMIs Next Week – Fed Jackson Hole meet next Friday
Euro US Dollar Exchange Rate on Track to End Week One and a Half Cents Higher
The Euro held steadier ground as Friday’s European session drew to an end, as a Pound selloff on fresh speculation of when Britain will begin the formal Brexit process caused investors to leave the Pound and buy up the more appealing Euro.
While the US Dollar ended the day above its worst levels, it was unable to drive the Euro back too far. The Euro has recently strengthened against the US Dollar due to low Federal Reserve rate hike bets, as well as news that the Eurozone’s economic growth had overtaken the US’ since Q2 2016.
EUR/USD could continue to edge higher next week, with the pair’s pre-Referendum levels now in sight. This will be especially likely if Eurozone stats impress and if Fed Chairwoman Janet Yellen adopts a dovish tone in her speech next Friday.
Throughout the week, the Euro to US Dollar exchange rate has advanced from 1.1164 to above 1.1300.
(Published 14:36 BST 19/08/2016)
EUR/USD still remains well up this week, very likely in a position to complete its second consecutive weekly rally. Having begun the week near a weekly low of 1.1155, the pair has gained almost two cents and was trending in the region of 1.1310 at the time of writing.
Euro (EUR) Rally Slows Amid Lack of Strong Data
The Euro slipped from its best levels on Friday, losing its steady weekly momentum as the week’s data had not been enough to keep the currency propelled.
Thursday’s session saw the publications of key Eurozone prints, such as July’s Consumer Price Index (CPI) figures and the European Central Bank’s (ECB) July meeting minutes.
While the inflation report wasn’t what many investors had really hoped for due to a -0.6% month-on-month deflation, it kept the Euro buoyed for much of the day as yearly inflation hit 0.2%.
Some analysts had forecast inflation to reach 0.2% in the year-to-July, but others had forecast 0.1%, making this score decent overall. The score is also the highest inflation the Eurozone has seen in eight months, according to City AM;
‘Although only modest, the figures crystallise the single currency bloc’s exit from deflation after four consecutive months earlier this year when prices fell. …
Howard Archer, chief economist at IHS Global, said the figures were “marginally cheery news for the European Central Bank (ECB)”, though he expected a return towards the ECB’s “close to but below two per cent” target to take some time.’
The ECB’s minutes report maintained a cautiously optimistic tone, hesitant to indicate that more stimulus was imminent but sure to remind markets that the door was open for the possibility.
Friday’s German producer prices beat forecasts, indicating that producer prices had not been affected by the Brexit vote over the channel, but this was not enough to drive the Euro at the end of the week.
US Dollar (USD) Strengthens as Fed Policymakers Urge Action Soon
The US Dollar once again attempted to recover from its recent plunges on Friday, slightly boosted by comments from Federal Reserve officials.
The ‘Greenback’ has been undermined by numerous datasets over the last two weeks, including disappointing productivity, retail sales, inflation and a Federal Open Market Committee (FOMC) minutes publication with a mixed tone.
July’s FOMC report revealed that policymakers were split on whether or not the key US interest rate should be raised sooner or later, hinting further towards the US economy’s difficult situation for the Fed. The report, published on Wednesday, was the latest in a series of blows towards the US Dollar.
Federal Reserve policymakers boosted the US Dollar slightly on Thursday evening, beginning a US Dollar recovery trend that continued into Friday. San Francisco Fed President John Williams stated;
‘In the context of a strong domestic economy with good momentum, it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later
If we wait until we see the whites of inflation’s eyes, we don’t just risk having to slam on the monetary policy brakes, we risk having to throw the economy into reverse to undo the damage of overshooting the mark, and that creates its own risks of a hard landing or even a recession.’
Williams is not voting on Fed policies this year, but he reflects a common notion among economists that the Fed is in a difficult position where it must choose between acting sooner and potentially rashly or waiting and facing potential consequences for it.
Euro US Dollar Exchange Rate Forecast: Fresh Euro Rally Opportunities Ahead
While the Euro to US Dollar exchange rate is unlikely to see huge movement before the end of the week, the US Dollar could easily continue on its current uptrend as investors adjust ahead of next week’s session.
To US investors, next Friday’s session could be the most important in August as the Federal Reserve will meet for a symposium at Jackson Hole.
This will be the first time Fed Chairwoman Janet Yellen has made a speech in quite some time, and her tone will be extremely influential going forward. If she plays up the health of the US economy, rate hike bets will surge, as will the US Dollar.
However, that meeting is still a week away. Before then, August’s preliminary PMI figures for the Eurozone will be released.
July’s impressed markets due to the implication that the Brexit had not affected the Eurozone’s economy, but if this trend happens to reverse in August it will cause worries of Eurozone Brexit affects to surge and the Euro will plummet.
At the time of writing, the Euro US Dollar exchange rate trended in the region of 1.1320, while the US Dollar to Euro exchange rate traded at around 0.8830.